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Cloudy with a Chance of AI: Navigating the FTC’s Regulatory Forecast

Data Counsel

Examining the Likely Impact of Washington’s My Health, My Data Act on Class Action Litigation Involving Biometric Data

The Bargaining Table

Practical Impacts of the ‘Cemex’ Decision

Carl Hittinger, Jeffry Liskov Author Legal Intelligencer Article on Antitrust Considerations in Executive Order on AI

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<a href="#sunscreen">Sunscreen Suits: A Plaintiff Will Rise?</a>

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<a href="#read">Read This Article and Earn Seven Figures Before You’re Through*</a>

<a href="#FDA">FDA Levies Unprecedented Fines Against e-Cig Sellers</a>

<a href="#evergreen">Evergreen Cases Return With a Classic False Discount Class Action</a>

<a href="#federal">Federal Trade Commission Initiates Roundtable Discussion of Generative AI</a>

<a href="#webinar">Register for Our Upcoming Webinar</a>

<a href="#blog">Check Out Our Latest Blog Posts</a>

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New suit, same allegations—are counsel’s tan lines showing?

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Here’s a brief follow-up to <a href="https://www.bakerlaw.com/insights/ad-ttorneyslaw-august-25-2023/#class">our summary</a> of Akes v. Beiersdorf, Inc.—or, rather, a follow-on, as in another lawsuit, pointed at another sunscreen maker, making very similar claims in the same district court.

Akes centered on the price differential between two “varieties” of Coppertone Sport Mineral sunscreen. The first was sold in 5-ounce containers for about $2 an ounce. The second, which featured the tags “FACE,” “Won’t Run Into Eyes,” and “Oil Free” on the front, was sold for about $4 an ounce.

The plaintiff maintains that the underlying sunscreen in both varieties is the same and that the price difference between them created a “reasonable” belief “that the lotion is specifically formulated for use on the face. In other words, reasonable consumers believe that there is something different about the Coppertone Sport Mineral FACE lotion that makes it better suited for use on the face, as compared to regular Coppertone Sport Mineral lotion.”

But if the actual sunscreen is the same across varieties with different prices, then consumers may have been deceived—and Beiersdorf, Coppertone’s manufacturer, was alleged to be violating California’s Unfair Competition Law, Consumers Legal Remedies Act, and False Advertising Law, along with other charges.

Akes, as we noted, survived Beiersdorf’s motion to dismiss. And perhaps that explains the filing of <a href="https://admin.bakerlaw.com/wp-content/uploads/2023/10/tan-comp.pdf" target="_blank" rel="noreferrer noopener">Lowe v. Edgewell Personal Care Brands, LLC.</a>

There’s not much more to say about Lowe that we didn’t cover by describing Akes. In this case, the plaintiff is suing Edgewell Personal Care Brands, the maker of Banana Boat sunscreen products, Coppertone’s flashier, Day-Glo competitor product line. The products in this dispute are Banana Boat Sport Ultra and Banana Boat Sport Ultra Faces sunscreen lotions, with a price point differential of $3 per ounce more for the Faces product. With those facts established—or at least advanced—the complaint is a fair echo of the original in Akes.

“The difference in pricing further indicates to reasonable consumers that the Faces product is specially formulated for the face, while the regular product is not, thus justifying the difference in price,” the complaint reads. “In particular, although larger containers of sunscreens and other cosmetics may cost slightly less per ounce than smaller containers of the same sunscreen or other cosmetics due to volume discounts, honest retailers do not charge the same price for them.”

Guess what? The same counsel represents the plaintiffs in both cases. Is this the birth of the next Snack Dragon?

Again, the conclusion is clear—if selling two products with the same formula, manufacturers should examine whether they are marketing one as having additional benefits and charging more for it. If that is the case, there is an increased likelihood it will lead to a class action lawsuit.

But we have a deeper question, which you might have guessed if you read the earlier article, which posited a dark conspiracy. “Why,” we asked, “is a cabal of stodgy New Englanders, who doubtless dress in tweed three-piece suits when they go down to the shore, secretly in charge of the sunniest company on earth?”

We were kind of kidding around, but now we note in earnest that Edgewell, maker of Banana Boat sunscreens, is also headquartered in Connecticut.

<a href="https://www.youtube.com/watch?v=__HBBf_eDLM" target="_blank" rel="noreferrer noopener">We’re through the looking glass here, people.</a>

Read This Article and Earn Seven Figures Before You’re Through*

*Just kidding; really, it was meant to be an ironic headline—please don’t take this seriously

Lurn. That’s the name of the company at the center of a recent <a href="https://www.ftc.gov/system/files/ftc_gov/pdf/FiledLurnComplaint.pdf">Federal Trade Commission action</a> that just wrapped up with—surprise, surprise—fines, bans, and lots of emails.

Before we get into the details, we can’t help but focus on that name. Lurn. You might guess that it’s an educational website or service of some sort, and you’d be right, but that “u” in the center of what would otherwise be a perfectly serviceable word is doing an awful lot of work. Revealing work.

Learn, but with a u. Several signals are being sent here: It’s a commonplace name spelled sideways—a favorite branding habit of the e-commerce era. Focus on the way that such a letter would be pronounced in the middle of an otherwise perfectly serviceable word and you get a little closer to the truth—a grunty sort of guffaw that signals that all is not right with this enterprise.

So, what is Lurn? It’s a self-professed “online (and offline) transformational home for entrepreneurs everywhere” that works to “empower, encourage, and educate” its audience on how to raise their entrepreneurial game.

If the FTC’s complaint is correct, Lurn raked in $65 million between 2019 and 2022 doing just that.

The company’s course offerings tip its hand. They include “Kindle Cashflow University,” which encourages “entrepreneurs” to closely duplicate highly reviewed e-books and then sell them on the retailer’s platform to hoover up “passive” income amounting to ... well, you get the picture—a ton of money.

Or consider “Printable Profits,” a course that instructs eager new businesspeople to emulate ... no, not e-books. Mugs. As in, mugs that sell well online. As in, let’s say, a mug with a photo of a kitten hanging from its claws to the underside of a tree branch with the motto “Hang in there, baby!” Change the motto to “Hang in there, tiger!” and slap a fake tiger face on the kitten pic, then sell your own mug for profit.

According to the Commission, the Lurn webinar that introduced this strategy claimed “that even if 98% of the designs are not successful, 2% of the mug designs being successful means that consumers can still make $11,453 per month based on the amount of overall mug sales made online.”

Notably, the FTC’s complaint isn’t centered on the company’s course content. No, the problem the Commission has with Lurn are those outrageous earnings claims, like $11,453 a month.

The examples in the complaint are legion. You’ve heard this sort of thing before, so we’ll list only a few. When reading these, remember every advertiser is responsible for being able to substantiate their claims. And here this doesn’t mean that it’s possible for someone to earn this much but that it’s typical.

A “5-Step System” to become a “Stay-at-Home Millionaire.” “Make More Than $13,700 per Day.” Or “You obviously want to get to six figures. Even in a year or a month, whatever it may be. You’re investing this one time to make that future investment to have the capability of making that in a month or at least that in a month in perpetuity. ... This could be the best decision you ever make in your life.” The last one was made by a telemarketer involved in selling Lurn’s “consulting programs,” courses that cost as much as $10,000 each.

The FTC also outlined other issues apart from earnings claims that instead fall under the always hard-to-define “dark patterns” umbrella. For example, one webinar claimed that participation in one of Lurn’s programs was limited and reservations to join it were rapidly running out. The problem? The webinar was prerecorded and played over and over again for months at a time. Hurry-up language may seem harmless, but the Commission is heavily scrutinizing language meant to induce consumers to enter a purchase funnel.

It may be obvious that the earnings claims made here won’t be enjoyed by the typical participant in Lurn’s programs. But the same analysis applies to any earnings claims, which are increasingly common in the gig economy. Before promising, for example, ride-share or delivery drivers that they’ll make a certain amount per month, talk to your advertising lawyer about whether those claims are actually supported.

In any case, the company, its CEO, and two spokespeople signed off on a <a href="https://www.ftc.gov/news-events/news/press-releases/2023/09/ftc-acts-stop-online-business-coaching-scheme-lurn-deceiving-consumers-about-money-making-potential">settlement</a> with the FTC. They now owe somewhere upward of $2.5 million in refunds and face bans on deceptive claims.

Perhaps the attentions of the Commission have provided them with valuable lessons in entrepreneurship.

Now, if only we could monetize their work.

FDA Levies Unprecedented Fines Against e-Cig Sellers

$20K fines are just the latest salvo in an ongoing war

Heads up, alt-tobacco manufacturers and retailers—the Food and Drug Administration has a bit of a fixation on you and your products, and not in the “let’s-grab-Califf-and-Woodcock-and-buy-some-disposable-e-cigs-and-hang-out-behind-the-QuikChek” way. The evidence? A <a href="https://www.fda.gov/news-events/press-announcements/fda-seeks-fines-against-22-retailers-selling-illegal-youth-appealing-e-cigarettes">spate of recent civil money penalties</a> levied against brick-and-mortar stores selling Elf Bar/EB Design e-cigarettes.

Twenty-two retailers are being hit with the maximum penalty—$19,192—for selling unauthorized tobacco products. This penalty was preceded by notifications from the FDA. “During follow-up inspections,” the agency noted, “the FDA observed the retailers had not corrected the violations, which resulted in these civil money penalty actions.”

What sets this action apart is that the fees mark the first time the Administration is seeking the maximum penalty. “The retailers can pay the penalty, enter into a settlement agreement, request an extension of time to file an answer to the complaint or file an answer and request a hearing,” the Administration shared, with characteristic understatement. “Those that do not take action within 30 days after receiving the complaint risk a default order imposing the full penalty amount.”

Is it the fact that COVID-19 has somewhat receded in the national imagination that we’re noticing all of these more “traditional” enforcement concerns being raised and pursued? Maybe. But perhaps the FDA wants to be taken seriously on this subject—and some of the background of this action explains why.

“The collective actions announced today mark yet another step in the agency’s continued efforts to remove illegal e-cigarettes from the market, <a href="https://www.fda.gov/news-events/press-announcements/fda-inspection-blitz-leads-more-180-warning-letters-retailers-illegal-sale-youth-appealing-elf-bar">particularly those that appeal to youth</a>,” the Administration said. The sheer number of warnings the FDA has issued is notable—400 warnings to retailers of unauthorized tobacco products and 600 to their manufacturers and distributors. Many of the recipients are brick-and-mortar sellers, which may speak to a new, post-pandemic vigor in FDA enforcement.

Are you a retailer? Would you like to avoid a $20,000 penalty for each unauthorized sale of an e-cigarette? Then familiarize yourself with the Administration’s list of <a href="https://www.fda.gov/tobacco-products/premarket-tobacco-product-applications/premarket-tobacco-product-marketing-granted-orders">23 approved e-cig devices and products</a>. E-cig products are still an enforcement priority—doubly so if they in any way appeal to youth.

Evergreen Cases Return With a Classic False Discount Class Action

We’re breathing a sigh of relief as we dig into some familiar casework

Window-blind retailers remind us of Tom Cruise.

Not because of their brash willingness to use a motorcycle to jump off a cliff into a BASE jump, a la Mission Impossible – Dead Reckoning or to fly rings around the next generation of hotshot fighter pilots like in Top Gun 2: Maverick.

No, we think of Cruise’s square jaw and maniacal eye twinkle whenever we think “window-blind retailers” because they, like Cruise, brought us back.

After years of COVID-19 restrictions, the global movie-house icon released a pair of well-executed, meat-and-potatoes blockbusters that, frankly, put tuchuses in seats—IRL tuchuses in IRL seats in IRL cinemas. It was a return to form for American moviegoing—a return to the normal rhythms of summer after the endless winter of streaming media and stay-at-home entertainment.

With <a href="https://admin.bakerlaw.com/wp-content/uploads/2023/10/blind-comp.pdf" target="_blank" rel="noreferrer noopener">Roger Barr v. SelectBlinds, LLC</a>, retailers fulfilled a similar function for COVID-19-scam-weary ad-law bloggers. The Barr class action brought us back to our pre-pandemic concerns with a good old-fashioned false discount class action, a workhorse case from the good ol’ days.

In Barr, the plaintiff is suing blind maker SelectBlinds under California’s false advertising and unfair competition laws as well as under the state’s Consumer Legal Remedies Act.

The accusations are straightforward. SelectBlinds is accused of advertising significant percentage discounts for products across its website and coupling the sale with a countdown clock that indicated the sale would be ending soon. The plaintiff maintained that these advertising tags were false—“The sales Defendant advertises are not limited-time events where the Products are marked down from their regular retail prices,” the complaint states. “Defendant’s Products do not ever retail at the supposed regular prices it lists. They always retail at a much lower price, at least 30% less. And when the countdown timer ends, the sales do not end. Instead, they are immediately replaced by a different sale offering comparable amounts off—always more than 30% off, and are typically close to 50%.”

Without any pretrial motions, the case <a href="https://admin.bakerlaw.com/wp-content/uploads/2023/10/blind-set.pdf" target="_blank" rel="noreferrer noopener">settled</a>, with $10 million awarded to the class and to cover notice, administration costs, and attorneys’ fees. Class members are entitled to 12 percent of the amount they spent on SelectBlind products, or roughly $75 on average.

If you don’t remember our summaries of these cases from the good ol’ days, state and federal laws require that the “reference” price being discounted be real. What makes the reference price real? The fact that the company regularly sells the product/service at that price—without any discount. The lookback period and the amount of time that the good must be sold at the full reference price vary by state, but generally the product should be offered at that price more often than not. If you look back at the past year, was your product or service on sale more than half the time? If it was, then it’s time to put away the discounts for a bit and stick to that reference price.

Federal Trade Commission Initiates Roundtable Discussion of Generative AI

For a party full of actors, artists, and models, it was a bummer vibe

We queried ChatGPT, but it failed to generate one good adage regarding the proverbial slowness of government to respond to rapid technological change, so perhaps our jobs here in the ad-ttorneys@law newsroom are safe for the time being.

That may change because, for now at least, in the race between Silicon Valley’s fast-moving breaking-of-things and the DC regulatory community’s glacial response to almost everything, the tech bros are sprinting ahead—despite, or perhaps because of, their own <a href="https://www.cnn.com/2023/05/30/media/artificial-intelligence-warning-reliable-sources/index.html">warnings about their technology</a>.

The Federal Trade Commission is very aware of this issue, and its <a href="https://www.ftc.gov/media/creative-economy-generative-ai-discussion-october-4-2023">recent roundtable discussion</a> on Artificial Intelligence, “Artificial Intelligence and the Creative Fields,” appears aimed at proactively approaching the issue. And as the Commission has made clear before, it is not waiting for legislation or even regulation to take action related to AI; instead, it will use tools it already has.

When AI Learns To Kvetch, We’re in Real Trouble

The roundtable brought together experts and industry representatives from different creative fields that are sweating out the impact AI has already had on their work.

There was Neil Clarke, science fiction and fantasy editor, who described the nightmare of having his publication, which formerly had an open submission policy, swamped by a flood of new, AI-generated sci-fi story submissions—“among the worst stories we’ve ever received.” Calling these submissions “spam,” he noted that “the problem is not quality at the moment, but rather the sheer speed and volume at which these works can be produced.”

Or Tim Friedlander, of the National Association of Voice Actors, who claims that members of his own industry group, while losing work to “synthetic voices,” are now being forced into the indignity of proving that the audio they’re submitting for jobs—their own work product—is not AI-generated.

Rounding out the marketing-relevant commentary, Sara Ziff, founder and executive director of the Model Alliance, described ominous signs of what she termed “digital blackface” in the fashion industry. AI is being tasked to generate digital models who appear to be people of color just to satisfy a company’s diversity mandates—even though the models are not real people of color, and the executives who would profit from their use are highly likely to be white.

Alongside the horror stories, there were a few practical suggestions regarding proper responses, government-initiated or otherwise. Friedlander, for instance, references the <a href="https://www.congress.gov/bill/118th-congress/senate-bill/2691/text">AI Labeling Act of 2023</a>. Bradley M. Kuhn, a Policy Fellow at the Software Freedom Conservancy who refused to appear on camera out of suspicion of video platform Zoom, recommended that consumers read all the normally clicked-through licensing agreements that they agree to when they adopt a service or start using an app.

Commissioner Rebecca Kelly Slaughter’s remarks, which followed Chair Khan’s in opening the discussion, seemed indicative of the current state of affairs. “The FTC’s prohibitions against unfair and deceptive practices and unfair methods of competition apply to applications of AI just as much as they have to every other new technology that’s been introduced in the market over the last hundred years,” she said. “These are powerful tools we can use on behalf of creators, workers, and consumers. And there may also be gaps in the law that need to be filled.” The FTC has broad authority to stop both unfair competition and unfair or deceptive acts or practices. It clearly views AI, despite its novelty, as posing threats that fall within these parameters. To the extent that AI deceives consumers or discriminates against them, we expect the Commission to be aggressive in applying its mandate. But as Commissioner Slaughter said—and the assembled creators requested—everyone is looking for more from legislative solutions.

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<a href="https://bakerlaw.zoom.us/webinar/register/WN_czfHefHlReyNkb1-oR3IIA#/registration" target="_blank" rel="noreferrer noopener">Drafting for Common Risks in Advertising and Media Deals</a>

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<a href="https://www.adttorneyslawblog.com/blogs/what-you-gonna-do-with-all-that-junk-fees/" target="_blank" rel="noreferrer noopener">What You Gonna Do With All That Junk (Fees)?</a>

In his State of the Union address this February, President Joe Biden promised to crack down on junk fees. The Federal Trade Commission (FTC) made good on that promise in short order on Oct. 11, announcing a proposed rule to prohibit junk fees. And a few days before, on Oct. 7, California Gov. Gavin Newsom signed a bill that would similarly ban junk fees, further emphasizing the focus on this area from policymakers. The California law goes into effect in July 2024; the next step for the FTC’s proposed rule is a 60-day public comment period.

<a href="https://www.adttorneyslawblog.com/blogs/district-court-decision-digs-deep-into-the-ftc-and-agency-law/">District Court Decision Digs Deep into the FTC and Agency Law</a>

If we look at recent Supreme Court decisions, the Federal Trade Commission (FTC) has a pretty dismal record, with well-publicized losses in AMG and Axon. At the district court level, however, things are quite different; we come across very few FTC losses. Although there are some recent litigations that are raising questions about the bounds of the FTC Act and other laws that the agency enforces, we are generally seeing courts being at least receptive to many of the theories raised by the agency. (It remains to be seen whether and how all of this will shake out.)

AD-ttorneys@law – October 20, 2023

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